Some serious questions concerning the boardroom at GVC Holdings (LSE: GVC) have caused the firm’s share price to fall 20% in the first quarter.
Investors piled out in the early days of March after news emerged that chief executive Kenneth Alexander and chairman Lee Feldman’s decided to sell £13.7m and £6m worth of shares, respectively.
Alexander’s proclamation that both men “remain convinced of the exciting prospects for the business” and “will not reduce our holdings below the current levels” was treated with a pinch of salt. And the commitment of the directors came under additional scrutiny when Sky News subsequently reported that Feldman was on the verge of stepping down from the board. At the time of the share sale just days before, it was claimed that both he and Alexander were “fully committed to GVC.”
Time to buy?
While this tale could very likely have more room to run in the months ahead, a scenario that could create even more turbulence for the FTSE 250 firm’s share price, I reckon GVC remains a brilliant long-term buy.
I reckon the heavy stock price reversals of the first quarter presents a great buying opportunity, particularly as the gambling giant now deals on a bargain-basement forward P/E ratio of 9 times and carries a gigantic corresponding dividend yield of 6.4%.
I’m not going to pretend that the Footsie firm doesn’t have other problems. Indeed, its market value has been sinking since last summer amid fears over the implementation of capped stakes for fixed-odds betting terminals (FOBTs) in the UK and, more recently, a decision by the US Department of Justice (DoJ) to overturn an earlier Supreme Court ruling, meaning that all forms of internet gambling which cross state lines are prohibited.
It’s a gaming goliath
I would still argue, though, that GVC’s long-term earnings outlook remains extremely bright. The company greeted the DoJ’s January ruling with little more than a shrug and has since claimed its joint venture in the States with MGM still offers a “very significant opportunity” for growth in this bright growth market.
Besides, there’s no guarantee that the Justice Department’s ruling won’t itself be revoked as the number of lawsuits demanding that the decision be changed grows.
The impact of FOBT stake limits on April 1 may be more of a concern to GVC, but I remain convinced that the long-term profits outlook for the business remains quite brilliant.
The acquisition of Ladbrokes Coral in 2018, on top of additional M&A activity in Australia and Georgia, now makes the business the world’s biggest operator in the rapidly-growing online gambling sector, and this paves the way for significant profits growth in the years ahead.
Indeed, the surging popularity of its sports and games platforms propelled pro-forma net gaming revenues (NGRs) 9% higher in 2018, and progress here continues to pick up the pace. In the period spanning January 1 to February 21, NGRs jumped 11%, driven by a 22% improvement in comparable online revenues.
The confusion concerning the boardroom is certainly a bother, but not something that detracts from GVC’s great investment case, in my opinion. Indeed, I consider it to be a top dip buy right now.